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tv   Squawk on the Street  CNBC  June 21, 2012 9:00am-12:00pm EDT

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>> maybe i'll bring the dog -- >> bring the dog tomorrow. bring your dog to workday tomorrow. >> you bring -- >> joe, we'll see you tonight 7:00 p.m. >> that's right. >> that does it for us. time for "squawk on the street." see you. good thursday morning. welcome to "squawk on the street." i'm melissa lee with jim cramer and david faber live from the new york stock exchange. carl quintanilla is off this morning. a look at the futures the day after the big fomc meet ing. jobless claims this morning coming in a little higher than expected. still a lot of data to come. maybe we're in wait and see mode here. existing home sales, philly fed coming up at 10:00. dow looking at 15 points here at the open. europe, all eyes focused on that spanish bond auction. spain managed to sell a little bit more than had been anticipated in terms of the amount of bonds issued. but in terms of the borrowing costs, that was, in fact,
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higher. looks like green arrows pretty much across the board. the expansion of operation twist left markets largely unchanged yesterday. should you be a believer in this rally? oil. well, is that sounding the alarm? crude dipping below $80 this morning for the first time in eight months on the fed's sharply reduced growth forecast and weaker china pmi this morning as well. two big earnings movers this morning to the downside. red hat missing on billings growth because of fx. bed, bath and beyond gives underweming guidance. raises for apple employees. at least those that work in the stores. store workers getting pay hikes of as much as 25%. this comes ahead of key product launches for the company later this year. meantime we have to focus on the markets here. futures are up slightly this morning after the fed's decision to extend operation twist. that resulted in a mixed market on wednesday. even though both the dow and the s&p 500 ended the session lower,
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the nasdaq extended its winning streak to number five. jim, being unchanged after the huge runup we've seen, that in and of itself can be viewed as an accomplishment for the markets. >> look, i was pleasantly surprised. i don't know whether the streak's broken today. but the market hangs in. it has a resilience that i find to be somewhat amazing. >> yeah. >> yesterday, we watched the last seven minutes. you couldn't believe the market could snap back again. there's some sort of what i call bid underneath. every time we get hit, there seems to be people want to come in and start buying the stocks. >> bid underneath. what is that? you just think that there is -- there's a little more love, perhaps, out there than we -- >> i think today could be a very telling day. frankly, we've got a couple of very high profile disappointments. they both -- we're going to be talking about them. red hat and bed bath. both of those stocks had run up plus 25% for the year. i keep waiting for someone to take profits. because when you have a five-day streak -- look, go back, way
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back for a couple two weeks when we had unemployment number that was horrible. when we had merkel really not playing ball. that seems to waver. >> it's not like she's playing ball now either. >> we've had a remarkable run based on frankly some hope that the fed would provide liquidity. we got that yesterday. that press conference was somewhat hostile, frankly. he's doing everything he can. geez, they were critical of him. >> is he? steve liesman had a very fine question. he was actually the first questioner to be called on. >> it was an excellent question. >> it was perhaps the best. will this be viewed back in time when you look back in history, will this be viewed as just incrementalism in terms of actions? is this too little along the way? shouldn't we just go at it and pow, punch the thing into high gear? >> i don't -- he's the most high gear federal reserve chairman i've ever seen. one of the things he had to do was to teach the press about how lower rates impact the way that
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people -- the way that banks lend. i know the press didn't really need that. i think it was more for the laymen. where is the pressure on the president and congress versus this man? he holds the most open press conferences. he holds himself out in a way that nobody else does. and, frankly, he has done more to save this economy than anybody. i know that that's somewhat controversial. but, wow, this guy -- they haven't even cut the second rate cut. remember, they put two rate increases through in europe. they've only cut once. this guy's done everything he can. >> explaining on operation twist, of course, because he was asked many times, well, aren't mortgage rates extraordinarily low already? bernanke did make the point, part of the process is also trying to crowd out other buyers. and that market pushed them into other risk assets. >> didn't you like that? that was so smart. >> try to lower borrowing costs. by the way, borrowing costs for corporate america are also extremely low. cash is plentiful on the balance
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sheets. multiples are fairly low. dividend yields are high. all of which goes, perhaps, to your original point of why there is at least a bid out there to a certain extent. >> we've got some oil news, too, i see on chesapeake. i may just close the loop here on bernanke. this market is up dramatically since he started this operation twist. i'm a market focused guy. he cannot tell bank of america i need you to refinance -- call all your customers and i need you to refinance now. he can't do that. he doesn't have that power. they seem to ascribe to him magical powers. the guy is doing everything you could want for a chief, but it doesn't seem to appease people. >> if there was ever a belief of some sort of central bank put, it's still in place. >> yes. >> reuters did this fantastic poll overnight, essentially. 50% of economists out there at broker/dealer firms believe qe-3 is still on the table. so there's still that hope out there that the fed will step in. it still has a big bazooka.
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it can fire. >> he can't make banks lend to people who they've gotten hurt before. you can't do that. because the banking standards are crawling all over everybody. you can't affect merkel. you literally -- he talked about those head winds. i thought it was a very good depiction of what goes on. he can affect the desire to own procter & gamble at 60 even though it may not represent value because it yields sweet 7.7. >> chesapeake, you've been seeing some of the headlines. all of this expected, by the way. they have finally announced a nonexecutive chairman, archie dunham. >> ex-ceo of conoco. >> mcclendon stepping down. all expected. we've known about this. remember, the board is now also comprised of a couple of nominees that carl icahn has had. southeastern asset management a very significant voice on that
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board. they already have lou simpson. another three. >> frank poses? perhaps the most shareholder friendly ceo? bring on fred poses. he's the guy who says put the curtain back. i'm showing everything. aubrey, fred poses does not allow this kind of nonsense. be careful, aubrey. the game has just changed and you changed it. >> that stock has had a nice move from the lows it saw not that long ago. they have to pursue these asset sales. they've already gotten one done or at least announced on the pipeline. there are other ones in the works. they have a large bridge loan they want to pay back by the end of this year. >> stat oil oes new york american ceo. he's calling chesapeake a terrific partner. understand i think chesapeake, there are many pieces for sale. there are a ton of pieces.
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aubrey mcclendon, he's not just going to watch the thunder go up in flames against the heat. heat? thunder and heat? >> i like that. >> what he's really done, he sneaks up to these areas where we didn't even know there was oil and he signs leases. he's a remarkable guy. i know he's dedespised. i don't know. i still got a soft spot for him. >> he's a throwback to sort of -- >> a throwback. >> a throwback to a real wildcatting entrepreneurial, charismatic ceo. there is something to be said for that. >> in this day and age, it seems like more of a liability. >> look, i mean, we live in a -- fred poses will clean it up. i know you can't say one board member -- i don't know. i used to have fred -- mr. poses. i used to have him on the show all the time. fred poses said every minute he would ask how do i bring out value? one way is to rein in the pay of the ceo. >> right.
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that could happen. >> it could, indeed. while we're talking about oil, why don't we move on and have a conversation about crude oil. >> is that called a segue in the game? >> a little bit. eight-month lows in wti. 80 bucks a barrel. right around that range. brent hitting new lows not seen in over a year and a half. shrinking factory output in china adding to concerns about global growth after the fed warned about risks to the u.s. economy. wow. by the way, interesting off the table -- it was only a few month ago that romney was gearing up to really start hitting obama on gasoline prices. that's probably been taken off the table. at least for a little bit of while. summer driving season has begun in ernest. >> it is rather amazing. you've got iraq pumping. libya pumping like mad. obviously the saudis are pumping. you've got the price, the marginal dollar of oil is getting to where we're no longer competitive on our new rigs if you're spending a lot of money because a lot of our oil is $60, $70 a barrel. our oil is all in the wrong
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places. we do not have pipeline capacity to take it to where the refineries -- we're way overloaded in the midwest. we don't have enough refinery capacity in the east and midwest which is why our price at the pump still pretty high. >> although -- gasoline negative for the year. when you see wti at 80 -- it actually went below 80 briefly earlier this morning. that is a relief. at the same time it's going down for the wrong reasons. when you have the stock market at five-week highs, pretty close at least to the 52-day moving average, oil down to its 200-day moving average, you got to wonder whether this is the canary in the coal mine when it comes to the true global growth story. >> isn't it interesting? look, the fed lowered growth yesterday. >> right. >> that was the guts of what they did. you don't want to pay out for commodities in a world where the fed lowers growth. there's a lot of commodities that are in glut. i think that's important if
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you're conagra. because conagra reports an okay number. finally inflation is not a problem. it's terrific if you're a consumer of food at the store. it's pretty miserable if you're a wildcater. >> it is. when you look at global growth, we look at the world right now. we know where europe stands. going nowhere fast. unfortunately going south at this point still. we talked about brazil yesterday. india, a lot more concern i've been picking up for weeks now. china, okay, still growing quite quickly. everybody would be happy to have it but slower than it had. it's got to be a main concern as we head into the summer. >> faux, faux, faux was something moses predicted in the '82-83 basketball season. 4:44 a.m. they got the money. maybe the funding is is done. i'm sitting here thinking there was a time when i used to be glued to when the fed -- the treasury used to sell bonds at
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2:00. used to get everything traded off that. what a bizarre world that the way prices are set now is at 4:44 a.m. because of what's happening in spain, geez, it should have been just soccer! >> in spain, by the way, we're still waiting the independent audit of its banks to see if the $100 billion bailout is actually enough to recap its banks. that's sort of another wild card hanging over this market. >> every tay brings the possibility of another headline that is actually not accurate about what angela merkel really thinks or doesn't actually think about the use of the esff, for example, to buy sovereign bonds. what mario monte thinks it should or shouldn't. we are still a market beholden to europe more than any other single thing. be it oil or growth here in the u.s. or lack thereof. >> oil is illustrative of these concerns. >> yes. >> it all goes back to we're uncertain about europe. we're uncertain about the fiscal cliff. we're uncertain about the
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elections. that is manifest in how oil, for instance, is trading. that also gives us a trade, jim. i know you've seen the walmart chart. >> wow. 68 bucks. >> do you think there is a coincidence between, you know, arbaugh gasoline going negative for the years and walmart hitting highs? >> yes. walmart is a barometer of diz posable income. and there are impulse purchases. when we go to walmart, in the aisles there are the blue light specials. >> he goes off. >> seen the new jeans? they keep going back and forth between designer jeans and not designer jeans. you do have a little more money in your pocket. you tend to spend it. same thing with costco. a little more money in your pocket, tend to send it. i do believe we can't underestimate the decline in the price of gasoline, particularly in the midwest aband balance that against what's going on in europe. banco santender up again.
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off from the 5s to the 6. changed its symbol. san. i boat mohammed ali, my commencement speaker when i graduated college. santender. you can change the symbol. you can run, but you can't hide. >> i don't think they're trying to hide. >> float like a butterfly. >> till may be the greatest athlete of the century. these two earnings reports we got after the bell. bed, bath and beyond issuing a weaker an expected profit outlook for the quarter. they have to spend money sooner than expected to improve ex-commerce business. red hat beating the street with its first quarter results. the lennox software provider warns. billings is the big miss. about 4 percentage points off of what analysts had been expecting p . that is an indicator of future revenue stream, jim? >> yeah. i was on the conference call. i believe this is an overdone sell. i like the fact that they call
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out -- one of these things, i love this. their slothfulness. they talk about southern europe being outstanding. and i believe -- >> really? >> yeah. outstanding. i thought this was like, wow, incredible. >> why would they bury that? if you're a red hat -- >> yeah. black hat story on the red hat. i do want to point out this is a company that has been very consistent. i remember this controversy between bookings and buildings first outlined by mark beniooff. they did change their model. i don't want to give up on red hat. bed bath is a little harder. they're the guidance wasn't so great. they're starting to spend. if you look at a two-year stack, get 10% comp source numbers, i like the fact one of these analysts actually called out a problem that green mountain coffee may be doing so badly -- >> that it's hurting bed, bath and beyond sales. are you kidding?
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>> the memorial herb greenberg call for bed, bath and beyond. green mountain coffee. one of those situations obviously that people who haven't read the whole thing yet, you got to read this note about green mountain coffee, starbucks going in tea. there's a convergence of all beverages going on right now. >> to what? >> you people love tea. tea has been a continual theme when you listen to these conference calls. they all want to know when the coke going to move into tea? coke has honestea. >> lots of tea offerings. >> i think tea is the new coffee. >> you do? >> yes, i do. >> you're going with that right now. tea is the new coffee. >> are you going to drink tea instead of coffee, though? no? >> i drink tea throughout my show. jackie gleason, boy am i old -- >> your show meaning "mad money." >> oh, geez. i do drink tea as opposed to the
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coffee that was spilled earlier. >> i spilled. it went into the crack. it's between the layers. >> i didn't even know you could do that. >> i didn't know either. >> artistic. >> i do want to point out, starbucks is is doing better than people think. dunkin donuts is off the charts. scott wapner's show yesterday they talked about the notion of who benefits from lower coffee prices. it really is the starbucks. keep focused on commodity prices. dean foods your number one name for commodity price decline. that's the most single levered company i follow to decline in kpodties. i think it goes to 20. it was the best performing stock for most of this year so far. >> in terms of the companies that benefit from lower coffee prices, you got to keep in mind who owns the franchises, who owns the stores and who are franchisers. duncan donuts largely franchi franchisees.
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>> one fifth of our country is kra california california. >> dollar store not that heavily concentrated in california. we're obviously very focused on spanish yield. don't forget, there's a fifth of the country that only just got its first duncan donuts sk. >> always important to remember here. thank you. mohammed ali to tea is the new coffee. >> i at no time work in the mets. sorry. we got to take break. coming up, a rough first half of the year for google as the internet giant gets ready to hold its annual meeting. a shareholder wants to hear from executiv executiv executives. futures, about a point on the s&p. 19 on the dow. stay tuned. this is the first car that i've been totally in love with
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in every way, shape, and form. it's my dream vehicle. on a day to day basis, i am not using gas. my round trip is approximately 40 miles to work. head on home, stop at the grocery store, whatever else that i need to do -- still don't have to use gas. i'm never at the gas station unless i want some coffee. it's the best thing ever. as a matter of fact, i'm taking my savings so that i can go to hawaii. ♪
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welcome to the world leader in derivatives. welcome to superderivatives. oracle ceo larry elson has agreed to buy 98% of hawaii's sixth largest island, lanai. he's acquiring it from david murdoch who is company owns all but 2% of the island. the price tag said to be between $500 million and $600 million. it was once known for pineapple fields but now home to a pair of four seasons resorts, golf
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courses and luxury houses. if you were larry ellison, what would you rename your new hawaiian island? tweet us. we'd love to hear from you. if you had a hawaiian island, what would you name it? >> i've been to that island. i would name it the donne island, donne, for john donne who wrote the poem "no man is an island." now discredited by this purchase. >> that's a good one. try and top that. coming up next, the stock that is on cramer's radar. is it heating up or cooling off? find out in his mad dash. we'll take another look at futures on this thursday morning. we are looking at a mixed bag here. to the upside on the dow and s&p. more "squawk on the street" straight ahead. if you are one of the millions of men
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fortime time for cramer's mad dash ahead of the market. let's start off with a name that's going to be up big. onyx pharmaceutical. 37% jump it looks like. >> onyx is a reminder of why people should not give up on equities. why is this so huge? we knew they had an anti- -- they had kidney cancer. we knew they had liver cancer. those are dreaded, horrible diseases. now they have something for multip multiple myeloma people didn't know about. the birth of a major pharma from a -- >> there's a big short position
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here. i would think that also is helping that gain right there. >> yes. this is a bit like alexon. you have chronicled the smaller companies that get bids. this isn't that small anywhere. >> no. >> this is how big pharma grows. bear has their partners. this company is worth a fortune. they're withdrawing their european -- >> talk about a company that has grown enormously. >> bob u fwrks an, ceo, i'm not ruling him out. he did reiterate guidance. everyone wants to give up on cell gene. onyx may be the key to today's market. >> i love when you say that. >> a throw back to -- >> the 1980s. the opening bell just 3 1/2 minutes away. get ready for another big day of trading and a lot more "squawk on the street." er ]
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the thursday the thursday trading session begins right now. take a look at the cnbc realtime exchange. here at big board, ing dutch day. and as the nasdaq russian foundation. there are a lot of pockets to watch. certainly watching the financials. there's a report being picked up by a lot of wire services, which is why we're bringing it to you. sky news reporting that moodys, the downgrades of u.s. banks could come out later today. that's just hanging out there. that's something to watch. it's being widely picked up now by the wires. >> we could report that every day. >> exactly. >> we know they said june. june is going by. originally they had said may. we'll see. sky news is a strange place to get a story like that from. we'll see. >> morgan stanley is up right now. >> yeah. >> morgan stanley is at the epicenter of this awaited -- the
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most awaited downgrade in the history of downgrades. >> one would expect it has been incorporated, many investors viewpoints of these stocks already. the only question of morgan stanley, for example, will it be three notches or two notches? that does have an impact on how much collateral they'll have to put up in certain areas and decisions they may make. we still are waiting. we'll see when we get them. if it's only two, perhaps there's even more of a rally left to go in that name. we're also watching shares of phillip morris. this has been a darling of income seeking investors because of its high dividend yield. pm cutting its full year. that's a common theme we've been hearing from a lot of companies. multinational companies, companies that operate primarily abroad as phillip morris does. seeing 5.10 to 5.20. back in april they also lowered fwi dance. up 30% in the past 12 months. one of these stocks that has powered higher. a big dividend. it operates primarily outside of the u.s. that's what people have been looking for for some time. >> i like for the purposes of
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this show only vice. diagio has been a real winner. johnny walker. pm has been a winner. i don't think pm, they're going to turn on pm. red hat talked about currency. a lot of people very quick to say red hat shouldn't blame currency. the fault is in themselves, not currency. i do believe that pm is a buy, not a sell. they've weathered this european situation. i would have thought they would have put $5 taxes on tobacco. but they've got very high taxes on tobacco yet they still do quite well because of china. people still smoke a great deal in china. >> in emerging markets there are a lot of smokers out there. certainly not as many regulations on cigarettes and smoking as there are here in the united states. that accounts in some part to the divergence in performance between phillip morris and some of the more domestically oriented tobacco companies. phillip morris has a dividend yield of 3.5%. that has pushed it into the portfolio of a lot of income seekers out there. we're also watching shares of rite-aid. what is it doing right now?
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rite-aid was the smaller than expected, narrower than expected loss also six straight improvement in same-store sales. that stock is higher by 6.5%. there had been some thinking that walgreens could be a buyer of rite aid. obviously with the alliance boost hookup that's probably off the table. >> not just what they're spending to buy the 45% of the boots now but they'll be spending their free cash flow for the next three years or using much of the free cash flow they generate in the cash flow to buy the remainder of alliance boots. walgreens is up we should point out. >> rite aid one of those dollar stories. not a dollar stock. not a dollar store but a dollar stock. people are always drawn to these. i want to urge people if you really think rite aid is having a turn, there's a lot of debt involved that might be more attractive. i know people don't want to hear about that. don't believe it's a -- no company wants their stock to go to a dollar. the reason why that one is down is because they are very heavily
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indebted. >> we should mention chesapeake, shares of which are not up sharply. let's call it almost flat. up a tiny bit. the news from chesapeake fairly significant. though not unexpected. they do name those new directors replacing the directors who didn't even get the majority. they put in the majority vote provision at the annual meeting. there's a look at chesapeake. call it unchanged. but it does appear mr. mcclendon is going to have a much tougher board to contend with. >> real board. actually he had real people on the board before. can i give a couple positives? pvh. they just reaffirmed. manny cherico. talked about raising numbers. conagra, rodkin. what a nice guy. ceo of conagra. they had always been hurt by inflation. they're citing inflation as one of the good things. almost 4% yield. these are the kinds of companies i like in this environment. >> yeah. banks across the board are higher. citi is up by 1%. jpmorgan continues its climb higher by 1.1%. yesterday was up 3%.
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nice run on jpm. maybe investors are taking a second look thinking the worst is behind it, thinking praps the share buyback program could, in fact, be resumed. bkw also. we talked to the cfo of bkw yesterday. had a huge run on the day yesterday. continues today, actually. higher by almost 3%. i'm wondering, jim, if you were a mcdonald's shareholder and you had ridden the stock up to new highs almost on mcdonald's, would you consider a rotation into a name like a bkw which may be somewhat of a turnaround play at this point? >> you're right. the bar is very well for bkw. borrow is low for wendy's. hasn't meant that much. there's a flight path for bkw. my travel trust has been buying mcdonald's. i like to buy great growth stocks that are down, ala nike, under armour today. people talking about sales perhaps slowing in under armour. i listened to plank yesterday on our network. i didn't hear anything about sales slowing. i think he's quite an honest guy. dick's people talking about dick's numbers being good.
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i urge people to recognize this area of apparel is red hot. one of the reasons is cotton. even though it's had a couple days straight up. cotton is very cheap. back half of the year for those who didn't hedge going to be very exciting because cotton is down so much. >> nice tail wind for pbh certainly. under armour is a domestic play in case you're looking for a domestic play. 94% of the revenues from the united states. that's another one that fits into that sort of popular notion these days. either you want income or you want a company that's exposed primarily to the united states. ua is one of those u.s. sort of centric companies. >> preaching to the choir. pe pier 1 down a lot because of bed bath. pier 1's got a great selection -- >> papason shares fantastic. >> i have one. you could take a nap in that thing tomorrow. right now. like that. go down. mary thompson is here on the floor in for bob pisani. >> we have a mixed market in
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early trade. the nasdaq, of course, which is coming off a five-day win streak the weaker area here. now down fractionally as sect conductors are under pressure today along with energy stocks. drug stocks and bank stocks looking higher. we're also keeping watch on commodity stocks today because it appears that the risk on trade is off today in large part because of the disappointing manufacturing data we received not only from china but germany as well. all of this coming on the heels of yesterday's downgrade of the u.s. economy by the u.s. federal reserve. still we continue to wait for a number of economic data points coming out later this morning. l.e.i. for the month of may. philly fed index as well as existing home sales. that could change the tenner of the market. as i mentioned we're watching commodity stocks again because of concerns about a global slowdown buffetted, of course, by the fed's move yesterday to lower outlook for gdp growth here in the u.s. of course, the continued weakness in manufacturing in china as well as the data out of germany today. we're also watching consumer
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stocks. one of the reasons we're doing this is as concerns about a global slowdown grow, we've seen, of course, a pullback in oil prices and gasoline prices. courtney reagan's going to have more on that from the nymex in just a moment. even as gasoline prices are slightly higher this morning, keep in mind as we head into the summer the lower gasoline prices might put more money in consumer pockets and, in turn, help retailers and a number of restaurant operators as well. lastly as you guys mentioned earlier, watching the banks. these five banks are expected to receive some kind of action from moodies. they've been testilegraphing th since february when they said these banks along with 12 others around the world put on downgrade watch. the one we're keeping the closest watch on is morgan stanley. its debt could be downgraded by as many as three notches, possibly two. again, this is going to happen sometime by the end of june. people are going to be watching this on a day-to-day basis. once again, we do have the mixed market. nasdaq is up about four but the dow holding on to a 20-point
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gain. >> we mentioned the oil stocks -- oil is down. oil stocks hold up quite well. >> xle is pretty firm today. >> you would think that's what would be hammered. shift to bonds and the dollar. rick santelli is at the cme group in chicago. rick? >> thank you, jim. look at a two-day chart of our 10-years, it's very fascinating as a technicianer -- used to be a technician. today's range is somewhat in the volatility range that was established right at the time the statement by the fed was released yesterday. to me, that means a lot more of the same. if you take that to the next level, currently this week, we have an eight basis point closing range for our 10-year. 1.57 on the low yield side. 1.65 on the high yield side. this is at a period of time where we're looking at europe, two-day fed meeting. i think that really encapsulates something if you consider it. let's look at some 10-year charts in those areas that we're most concerned with. all of the sudden the barometer of intensity seems to have come down. yes, i'm talking spain and italy. david's been talking about short
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maturities. i agree with them. let's keep an eye on these. 3-year, over ten years in italy -- excuse me. spain first. you see that around 5.5%. this isn't really a good thing. italy around 4.5%. you can see on those 10-year charts in the context of where the markets were in those maturities in '08, maybe yields have come down. maybe they're not flashing red, but it's a derivative form of that color. name it what you want. back to you. >> thank you so much, rick. let's head over to the nymex where courtney reagan is following the energy and metals markets where all the action is. >> that's right, jim. a lot of action down here today. wti crude breaking below that $80 a barrel mark, breaking below that threshold briefly and moving back up. traders watching that key technical support level of $78, the next leg down. brent crude also trading at lows we haven't seen since december 2010. it's all about the fundamentals. makes me want to draw the supply and demand graphs we all learned about in college and so on and so forth. oversupply, lower demand.
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not only worried about what we heard from the fed yesterday with the lower forecast here for the united states, but also that chinese pmi factory data. that's really, really worrying the crude market and the entire energy complex. we know that natural gas inv inventories coming out in an hour. we'll see what happens. prices just a little higher. metal is particularly sensitive to what we heard out of china and that pmi data. gold breaking below that key support level of 1585. the next leg down we're watching is 1571. one of the gold traders telling me it's a stair step up but an elevator ride on the way down. faber, over to you. >> thanks very much. let's talk with nelson pelt. he was on "squawk box" i believe it was yesterday. a busy week. news out you may not have noticed about ingersoll rand out yesterday. came out and said we had been offered a board seat. we were going to take it.
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then it came with conditions. one of them being if we took the board seat we couldn't actually undertake movement towards an extraordinary meeting any time in the next year or so. so he said, forget it. we don't want your board seat. after deliberation, it agreed to accept its invitation. it realized such an invitation was going to be subject to the triangle agreeing to -- therefore it walked away. all of which seems to be setting the stage, jim, for what could be a showdown at some point here between mr. peltz and trians. you'll see them show up places. they don't get active in the traditional sense because they have already a dialogue with management or perhaps management has already said, hey, we'll do many of the things you want us to do. in this case it tuz seem to be setting up for more of a bit of a battle. >> new ceo there. give him a little chance, i think. i do recommend following peltz. he's made people a lot of money when he's involved.
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heinz, bob johnson ceo, said, look, he's a positive force. i don't know. definitely watch. ingersoll has been a disappointment. maybe he can mix things up. >> we'll see. we're talking wendy's and heinz. tiffany. family dollar stores has actually been a very good performer for them. lake mason not so much. on the news about financials mentioni ining legg mason, not great performer, they did file a 13-f earlier this week on lazard. there have been conversations between trian and lazard. they were at 4.9. lazard bought back stock. they are very focused i'm told on the comp ratio at lazard. that's where they believe the money can come from in terms of
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bringing -- giving the ceo more of a tick stick to hit people w. in an environment like this for financial services where one would argue the competition for talent may not be quite as strong as it's been in the past given there are layoffs, you can try and bring comp down sharply. when it comes to lazard and that part of the story involving trian, keep an eye on the comp ratio. will it have ripple effects out ward from lazard if they are successful in bringing it down? >> peltz has often been someone people like to listen to when he takes the stage. he's had a lot of good ideas. not just a slash and burn kind of guy. >> not just a slash and burn kind of a guy. yes, they have fashioned themts in having expertise in terms of at least helping the operations in a number of companies. it helps. it gives them the credibility where they can go after even larger companies. much larger companies. there's no chance of really mounting a true battle on. but you can have your influence felt by the board of directors
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fwl important guy to watch. made money even after -- by the way, even after it's been announced that he's involved, you've made money. because he is an activist who is smart. >> all right. coming up, larry ellison spending hundreds of millions of dollars to buy 98% of hawaii's sixth largest island. if you are oracle's ceo, what would you name your new hawaiian island? tweet us @cnbcsquawk st. take a look at your early morning movers on wall street. ♪music plays throughout
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would you rename your new hawaiian island? j.c. tweets ellis island west. i like it. maybe its own statue of liberty nearby. oracle ceo can rename his new hawaiian island silicon island. john tweets larry should name his island mypad. ryan tweets, the oracle of hawaii. >> nothing about tiny bubbles or don ho or anything? >> i want to know who's the 2% owner? in other words, some guy with a shack going to be still on his island? because he owns 2%? >> it's going to be a freeze out. remember? freeze out that guy. >> i own 98%. pushing you into the sea. >> exactly. taking a look at the markets, basically flat lining it with the s&p down by just about two points. the dow is higher. it's hanging in there up by about 15 points, jim. i don't want to say the divergence. oil stocks today have been sort of hanging in given the big
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moves we've seen, 3% lower in crude yesterday. today down another, what is it here, 1%? >> i don't want to be so weather oriented as to think, well, what can be buoying some of these things. we have martha and the vandellas doing a heat wave. there's a sense natural gas has stopped going down. i think it's more a function of glut than heat. people do crank it up. they crank it up when it's this hot. that does have the possibility of burning off a lot of natural gas. aubrey mcclendon could be -- you know what? he's just -- he's a guy you like to talk about. but he's chesapeake ceo. we got to really focus on the fact fred poses has come onboard. natural gas could be bailed out by heat. >> chesapeake down by 1.2%, by the way. >> wouldn't it be interesting if heat, the heat beats aubrey mcclendon's team, the miami heat, but he's bailed out by the
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heat? bittersweet. >> wow. i had to think about that for a minute. that's very clever. >> right to the couplets today. >> yes, i am. >> how about sonnets? >> haiku is particularly challenging. >> that's right. on that note, much more "squawk on the street" straight ahead. coming up, it's finally summer. and cramer is heating up wall street with six stocks in 60 seconds. "squawk on the street" will be right back.
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all right. all right. six in 60 seconds. let's start it off, mr. cramer, with what do we got? whole foods. >> just a juggernaut. someone's going to downgrade it eventu eventually. trends are good. >> interesting story. celje celgene getting crushed. >> incredible. not going to be -- new onyx on fire. >> buy here? >> yes. reaffirmed. i will buy.
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>> vf corp. added to citi's top picks live list. >> this is northface. of course, not the time to wear northface. this is a remarkable company. i agree with the wall. >> juniper networks. >> you got to be careful. i know the balance sheet is good. they've got cash. it's not working. >> tjx recommended by wells fargo. >> because of the jc penney factor. >> when's the last time you were at tjx. >> yesterday. trying to find handkerchiefs. >> nck is not liked at morgan stanley. >> this is a market problem. they got to start discounting. be careful, seagate. >> celgene onyx story is one i'm going to be watching today. >> huge. sunrise, sunset. >> yeah. >> you were doing moses supposes when we talked about fred poses. >> we still got a little bit of time. what's on "mad" tonight? >> this is a company, david,
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you've been following probably. energy transfer. biggest buyer and i quiacquirer pipeline. they just said they don't need to raise equity. that's important. highest yielding of all the master limited partnerships i follow. kelsey is the most inquisitive guy. i think he's a good man. >> that area is one people come to time and again when they talk about yield. >> when ben bernanke talks about how they're not going to raise rates within the foreseeable future, you look to master limited partnerships. a lot of them weaker. natural gas liquids? where we going to put them? volume hasn't been good. kelsey is taking steps to build a national pipeline network. we are short pipelines. i had the stat oil and north american ceo. look, we need more pipelines. we need to put more people back to work. talking about washington being the log jam. >> "mad money" tonight 6:00 and 11:00. i'm on that. stay cool, my friend. stay cool. right up to the break we've got philly fed and a lot more. stay with us.
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summer in new york state has something different for everyone to love. discover what you love. visit to plan your summer trip now. welcome back to "squawk on the street." rick santelli here. a lot of numbers going to be coming out. we're going to be having the june philly fed. we're going to have the may report for leading indicators.
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and just to catch up on some of the data that we've seen today, that isn't normally data we talk about because it's relatively new, market markit involved in otc derivatives mostly. 52.9 on their pmi preliminary. lower than expectations. leading indicators for may up .3%. this is much better than we were looking for. we were looking for up .1%. now if we look at philly fed, a much more contemporary june data point, it was wow! it is down 16.6. down 16.6. which will make that the weakest read going all the way back to august of 2011 when we had the read of minus 22.7. so we want to definitely keep an eye on that. now let's go to diana olick who has some housing data points. diana? >> reporter: that's right, rick. existing home sales in may fell 1.5% to a seasonally adjusted annual rate of 4.55 million units. april's numbers unrevised.
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sales up 9.6% year over year. they fell in the northeast 4.8%. rose in the midwest 1%. down .6% in the south. down 3.4% in the west. median home price in may was $182,600. up 7.9% year over year. that does not mean that your home price rose nearly 8% in may. this is due to the mix of homes that are currently selling. homes under $100,000 declined. sales of homes over $250,000 rose 20%. so it's shifting that median price does not, again, mean your home price rose that much. it was the same story last month. inventories, though, the big headline this month. inventories at 2.49 million universities. that is down 20% year over year. we're now at a 6.6 month of supply of homes on the market. realtors say we did not get that spring bump in homes on the market. distressed sales fell to 25%. that's the lowest since the nar started tracking this reading.
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that, again, is due to a very short supply of homes on the low end of the market. investors want to get in and buy this stuff, but they can't find anything to buy. that's why the investors share dropped to 17%. first time home buyers are not stepping up to the plate. they're still at 34%. they should be at 45% in a healthy market. again, it's that inventory, it's that supply of homes of organic regular homes not coming on the market and distressed homes falling as banks are still not getting these distressed homes out on to the market. melissa? >> thank you very much, diana olick. only a modest reaction in the markets here. all three major indices lower. let's get to the road map for the next hour of "squawk on the street." crude sliding below that key $80 mark as gold and copperhead lower as well. as the fed pledges to extend operation twist, what is next for the metals and energy markets? bed, bath and beyond taking a beating this morning on its weak guidance. so as the retailer looks to improve its e commerce business, how will it fair against the amazons of the world? plus, embattled big box name
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best buy hosting its annual shareholder meeting today. but as consumers look to stores like apple for their tablets, how will the retailer stay relevant at this point? we need to discuss oil. we need to discuss the economy. we need to discuss the data. let's break away for a moment and talk about chesapeake energy announcing the appointment of five independent directors to its board this morning and naming archie dunham as its new chairman. you'll be aware our own kate kelly has led the reporting on this story. she joins us now with the details. >> thank you so much, simon. very interesting news out of chesapeake. they managed to release this a full 36 to 48 hours before the market was expecting it. they had a self-imposed deadline of june 22nd. here we are the morning of the 21st. at a quick glance archie dunham, new chairman, seems to be a well regarded guy, no apparent ties to chesapeake. doesn't even own the stock as far as i can tell or maybe a small amount that's not been reported. essentially no ties that i can see. he is an oklahoma native. of course, chesapeake's an oklahoma company. aubrey mcclendon a native as
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well. dunham lives in houston and had the bulk of his career or at least the most important chapter at conoco phillips where he was chairman and ceo. he's been retired for a number of years. still on a couple of boards. union pacific, louisiana pacifipacifi pacific. he was just reelected to those positions. he plans to stay on those boards. the other board member is interesting. they appear to be fairly independent as well. a fellow, brad martin from sacs incorporated. obviously the retail world. different. might bring interesting perspective though not the energy background. bob alexander, founder of energy corporation, interestingly has ties to sand ridge energy in the sense he sold -- i'm looking at the release. chairman and ceo of national energy group from 1998 until it was sold in 2006 to sand ridge energy. sand ridge now owned by tom ward, co-founder of chesapeake. that's not necessarily to say that there's too much overlap. but there are obviously a lot of deep connections, you guys, in the energy world. it's very hard, i think, to find
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directors or executives with relevant energy experience who haven't had some fingers in some of the same pots that the chesapeake current directors have. it looks like they've done a pretty good job of having an independent slate. they certainly have the support of major shareholders who are all quoted in the release. at the same time, you know, not entirely outsiders that we're looking at. >> kate, i know you're not a stock analyst. but i got to ask you, the reaction on the stock is pretty sharp. down by about 2.6%. i know the shorts have been leaning into chesapeake. percent of shorts out there right now, 13% of shares outstanding. it is fairly high. what's your interpretation at this point based on what we know about these new appointees and the stock reaction? >> i think, melissa, there was a lot of expectation already baked into the stock about these changes. i mean, i think the assumption was they would find independent directors and they would find people with no ties and try to start with a clean slate. i had a long conversation with a couple corporate governance experts this week anticipating this development. i was told by gmi ratings chesapeake right now has an "f"
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for corporate governance and the other things that go into their ratings which include environmental and social issues. so does sand ridge energy, the company i just mentioned. the issue is, it's going to take a year or maybe even two, three years for chesapeake to sort of dig out of this governance hole. i think these moves are a good start in the eyes of critics of the company. but it's going to take a while for this new board and particularly mr. dunham the new chairman to prove their meddle. gmi ratings says we probably would not upgrade this company until we see a longer degree of progress. within a year, the shareholders of chesapeake are going to have a chance to vote with their proxies, you know. if they don't like this new director, if they don't like these new -- this new board, they're going to cast him out in a year because they'll have that ability. >> okay. all right, kate, thank you very much. we should note, of course, it's a bad day generally for energy issues with the price of oil down. kate, we'll come back to you later in the program. thank you. let's get back to all the data we just had time to dig a little deeper on the numbers as well as the fed's pledge to
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continue on to operation twist in the new reduced forecast. michelle gerard, senior economist with rbs. eric ristoban. great to speak to you both. eric, i want to start with you. based on the data we got this morning, what the fed said yesterday at the quarterly press conference does that change at all the way you view the markets in the next 6 to 12 months? >> we got what we expected. we didn't expect the fed to do qe-3. we expected them to continue operation twist. the economy is slowing. it's clearly -- it's clear we're experiencing a third consecutive year of soft patches in the spring and summer. i think this one you can lay very firmly at the doorstep of europe and the concern and the uncertainty around europe is something the fed cannot fix. they're going to need to address it. i think the market is going to be focused very heavily on what happens next year -- next week in the summit. >> michelle, it seemed at the quarterly press conference there was a lot of pushback on the chairman in terms of getting out there, getting in front of the problem and being aggressive
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enough. interestingly, there was a reute reuters poll this morning that polled economists on the street. 50% still believe qe-3 is on the table for sometime later on this year. in your view, is qe-3 on the table and what would be the trigger for the fed at this point? would it be more our own problems or what happens in europe over the next couple of months? >> i certainly think it's on the table. we think that it's most likely going to happen by september. that is our best guess. we will get qe-3. i think the reason the fed got so much pushback or bernanke was questioned about not being more aggressive at this meeting, boy, if you look at those revisions to their forecast, they no longer have growth above friend. not until 2014. they have unemployment rate coming down less than a half a percentage point if you look at the mid-point of their range by the end of next year. they've been very clear that the trigger for further action would be if they weren't making sufficient progress in the employment situation towards
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their mandate. boy, their forecast seems to suggest that that threshold has almost been met already. i think that's why there was some question why they didn't take action in june. just based on the fact outlook had been revised. >> michelle, i think there's something much more important potentially going on here. i'm looking at oil. i'm looking at gold. perhaps the belief that the fed is moving away from its ultra easy acome tative stance. it got it wrong with the seesaw adjustments on unemployment. they're not going to reinvest money that coming from maturities. that's also implicit. there's no qe-3 on the table. i think this is a major moment in which we realize the central banks -- let's remember where we were a week ago. that very strong rally on thursday and friday in the stock market. we thought the central banks would come to the market's aid. that's not happening really from the fed. twist is neither here nor there. it's also not what you're hearing from the ecb. this is a very important moment where the markets are clearly -- certainly the commodity markets
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are deflating, michelle. >> you're making a good point, simon. this fed earlier in the year was very aggressive. they didn't wait. if they thought there was a chance they needed to do more, they acted very proactively. as i said, they had very sharp down revisions to growth, employment rate coming up. yet they didn't act. they're being more thoughtful, being more patient. i think they're holding their fire a bit. they recognize there isn't a whole lot to do and the emphasis really -- the pressure really needs to be on policymakers particularly in the eurozone to do the right thing. i do think you're right. >> let's focus on what's happening here. eric, let me come back to you on that question as to whether the fed is moving away from an easy stance. you've got to judge them by the actions, not by their words. yesterday the employment revisions are really poor. we're not going to get, according to them, much employment growth. but still, they say, yes, they might move further down the line. but they're not willing to inject more liquidity now, eric. >> yeah. i get it. what they're i think also pointing out is that the fiscal cliff issue that we face in the united states is a fiscal issue.
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the issues that are at the core of the problem in europe are fiscal and solvency issues that relate specifically to their banking industry. they need -- those issues need to be solved and they need to be addressed because any action that i think the fed takes here certainly is really not going to be effective in adresing the fundamental underlying problems. we need the action of policymakers to actually take care of those. >> erik, how do you read the mark at this point? yes, it was a little bit volatile in the session during the press conference. at the end of the day it was largely unchanged. here we are, lower but holding in there close to five-week highs. what is the market thames us in contrast to what the fed is telling us? >> what the market is telling us is that the u.s. is probably not going to recession. that's what we believe. without europe going into some kind of catastrophic failure. the reality is the market is also expecting europe to actually do what they need to do to address their fundamental problems.
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and i think you're going to see today be a relatively, you know, flat day. tomorrow likely a flat day as all eyes are focused on what happens next week at the summit. >> all right. michelle and erik, thanks for your time. we appreciate it. >> thanks. investors in bed, bath & beyond are not used to having cautious statements from the business. that's exactly what they've got from the retailer. among the reasons, having to spend money sooner than expected to improve the e-commerce business. it's been a great stock. is it a buy from here? stay with us on cnbc. laces? really? slip-on's the way to go. more people do that, security would be like -- there's no charge for the bag. thanks. i know a quiet little place where we can get some work done. there's a three-prong plug. i have club passes. [ male announcer ] get the mileage card with special perks on united, like a free checked bag, united club passes, and priority boarding. thanks. ♪ okay. what's your secret? [ male announcer ] the united mileageplus explorer card. get it and you're in.
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45 minutes into trade. it's been a rough opening for bed, bath & beyond after the business came through with estimates of profit results that topped estimates last night but forecast a weaker than expected outlook. let's bring in brian nagel, analyst at oppenheimer. and lauren champine joins us. brian, this stock has been a phenomenal performer. it's up 41% over the last 12 months. you've doubled your money in it over the last five years. from that dominance of the market, what do we now make of the forward looking statements, brian? >> look, i think the performance you point out is probably one of the biggest reasons the stock is trading like it is this morning after a relatively disappointing
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q-1 report last night. what do i make of this? look, i think the real quick take away for bed, bath & beyond is that results it sha-- we dide the upside we've become accustomed to. >> you have an $84 price target. that now means 30% upside from here. are you going to stick to it? >> i am. actually, my team and i trimmed the price target a bit today down to $80. we very much reiterate our outperform rating. we've been telling clients this morning as we've been talking about bed bath, look, let's keep this in perspective. no doubt it's a disappointment. frankly it makes sense to me the stock's down today given its recent run. but disappointment, yes. results have not fallen off a cliff. bed, bath & beyond remains a solid performer and the company has shown the ability to quickly bounce back in the past. >> laura, i wanted to ask you, when you read through the results were there any sort of red flags within the types of products they sell, the mix they
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had? jim cramer was pointing out the commentary about green mountain coffee, some believed sales were so weak that actually impacted the overall result? >> i wouldn't blame this on anything that has to do with k-cups. the mix is lower end. that's hurting margins. but the real point to make here is that there's been a change in trend. when we lowered our rating two months ago, we called out that the february quarter was the first time in bed bath's history that it lost share within home furnishings. that trend continued and actually worsened in the may quarter. >> who is it losing share to? >> tough to say. i think there are a broad range of competitors. online competitors. the dollar stores, we talk a lot about them taking share versus walmart. they sell a lot of decent looking kitchen gadgets, too. bed bath reached a point where it's tough to grow from here. >> laura, is amazon going to rip the heart out of the business? obviously they've got new online platforms. bed, bath & beyond is investing in response to that. also it's had these purchases to try and get some products on the
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shelves that people can't buy elsewhere. linens and so on. and food, importantly. is that enough to ensure it doesn't become tomorrow's best buy? >> i think that amazon will take some share at the margin. but it's important to put that in perspective. we think amazon did about $200 million last year in home furnishings. bed bath just did $2 billion this quarter. online competitors in general will likely take share from bed bath in the near term. but we think that the company's bigger picture issue is that it's grown to the point of maturity. >> brian, i'd just like you to respond to laura's concerns. particularly as it relates to this idea there has been a change in trend. i assume you don't agree? >> well, i don't disagree that we have had a really big move here in sales trends at bed, bath & beyond over the last few years. the other poind i would make, bed, bath & beyond benefited significantly from the demise of linens and things that happened about three years ago. that benefit probably wanes if
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it hasn't waned already, too. i don't totally disagree. the one thing i would say, we've seen bed, bath & beyond historically, it's a company good at merchandising stores and driving incremental sales. the proposed acquisition of cost plus world market is going to bring a whole new merchandise to their stores. while large numbers may have caught up with them a bit, i would not count them out. they do merchandise the stores extraordinarily well. >> in the past whenever they've been more cautious than the market expected they've come back and actually beaten on the cost. we'll come back and see what happens. thank you very much. >> thank you. the east coast getting hit with a very strong heat wave this week as temperatures here in new york city are going to reach perhaps as high as 100 degrees. so as temperatures soar, what is the best way to play the utilities sector? we're back in two. wanted to provide better employee benefits while balancing the company's bottom line, their very first word was... [ to the tune of "lullaby and good night" ] ♪ af-lac ♪ aflac
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the company raising its dividend earlier this morning up from one penny from its current payout. up a penny. the retail tangled in lots of controversy of late. the departure of brian dunn. what's next for the big box name? still has a $7 billion market value. david strausser, i know you recently wrote the negative sentiment, certainly low valuation gives absolutely no credit to anything possibly going well in the back half of the year. any sense that anything will possibly go well in the back half of the year? >> yeah. i think so. i mean, you had the upp. yesterday sharp came out and is putting their newest setout. by that i mean unilateral pricing which is setting bottom prices for tvs. that's a really big deal for this category. it feels like the manufacturers are cutting production of tvs. that should help pricing. there's some good pc products coming out in the back half. whether it's ultra books. maybe windows 8 helps. it could be a little bit of hope there. there's something there.
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>> you know, when i look overall, though, at the bigger picture, i think a lot of people would say, okay, i can see how this thing may be for a trade, maybe on the second half of the year, as you say, very low valuation. but the trend itself with amazon, with showrooming, with so much going against it, how do they really reverse that and reengineer this company so that it can thrive in the current digital world? >> i think they are so much further along than people think. you just had the segment about bed bath. they're about to start experiencing and trying to figure out how to deal with some of these issues. the consumer electronics industry has been looking at the internet for a long time. look at the mpd addata. best bay hasn't lost share online. upp, tvs, that's who responds to what's going on online. that's the beginning -- better pricing out there. sales tax. california, texas and pennsylvania by the end of this year are all going to be collecting sales tax. that's a really big deal for big ticket purchases online.
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>> they may not have been losing any share online, david, best buy, that is. it seems like they haven't necessarily gained. they haven't even benefited from their own showrooming. are you saying taxes will be the key to leveling the playing field? and at that point we should see gains for best buy? fact of the matter is people still go into best buy and they go to amazon. they don't think of best buy. their pricing strategy online is different from the pricing strategy in the store. >> actually, you can't do that anymore with upp pricing. the price is going to be the same everywhere. what i was trying to say is that that's not -- the showrooming is a great thesis. it sounds great. it's just not really happening. tvs really haven't shifted online. there was a spike that way. it's come back down. i think once you see this upp installed, you're going to -- and sales tax come back, you're going to see basically the tv category -- it's not going to happen online anywhere. >> david, you and i are living in parallel universes. i'm looking at a stock price that has been hit really badly recently. the abrupt te parture of the ceo.
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departure of the chairman. temporary ceo talking about forcefully the need to have bold actions to move the business forward. yet you seem to be kind of like, it's okay, don't worry, everything's fine. >> we do live in parallel universes. but i have a lot of numbers behind me in the way i'm looking at these things. >> you should give them to management. management clearly thinks it's got an issue. >> hold on. the issue of the larger stores, can they shrink down stores? yes. even with larger stores and all of what you're talking about on a sales per square foot basis on an operating profit per square foot basis, gross margin per square foot basis they're one of the most productive by far in all of retail. they've been in tough products in the last few years and it's shown in comps. to argue this is related to the internet and secular charges if they're going out of business, there's no numbers that defend that statement. i have a lot more numbers behind me. i can show you that on all of these different metrics that they're in so much better shape than the stock can say. the stock is what it is. i've been wrong on the stock. i get that. i think a lot of it is perception. the showrooming perception which
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doesn't really bear itself out in the numbers when you look at them. it's more about there's been some tough products out there. i feel like a broken record. because i've been saying this for a while. the stock keeps going against me. i mean, but reality is, is that they're in much better shape than the stock is. >> that's a very -- what you're saying is it's a screaming buy. >> i think it's a screaming buy. it's a screaming buy. looking a little bit for a catalyst. >> david, thanks for your thoughts there. good to hear somebody actually come out on one side of a thing and actually answer questions directly. we appreciate it. david straszer from januariny capital markets. melissa? coming up next, breaking news on nat gas inventories. as the u.s. dollar heads higher on the back of the fed's decision to keep on twisting, what's next for metals? we're talking copper as well as crude. that's next. t.
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welcome welcome back to "squawk on the street." i'm courtney reagan at the mercantile exchange. we are just now getting the weekly natural gas storage report. a smaller build than expected at 62 billion cubic feet. they were expecting between 63 and 67. we are still up. it looks as if we are up as a result of that. just by a couple cents or so. last week we got a smaller build than expected. we saw prices rally about 14%. biggest percentage gain in a day since 2009. summer heat also going to be impacting trade today as we continue. we know it is very hot here on the east coast.
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that could help prop up prices as we use more natural gas to fuel those utility bills. simon, back to you. >> thank you very much for that. we are an hour into trade. good morning if you're just joining us on the west coast. main headlines, 7:31 on the west coast. 10:31 on wall street. signs of a further slowdown in mid-atlantic manufacturing activity. philly fed index for june falling almost seven points to minus 16.6 forecast called for a reading of zero. drug makers merck and pfizer bucking the market down trend this morning as this morning's biggest gainerses in the dow. according to freddie mac the average rate on a 30-year fixed mortgage, for a 30-year, falling to a record low for the seventh time in eight weeks. now down to 3.66% for 30 years, david. >> wow. 30 years. all right. that's a long time. as we are one hour into trading, why don't we head down to chicago for more on the market's latest moves. for that we're joined by john
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brady, senior vice president of interest rate products at r.j. o'brien. he joins us from the cme. john, global slowdown. we keep talking about it. not just here, in europe, but india, brazil, china to a certain extent. what's that mean for commodities? >> it probably means to the downside, david. yesterday gold had an impressive selloff following the fed chairman's press conference. and we've seen follow through this morning to the downside. not just in gold but in crude oil. in another sense demand side metals. it suggests again as the global economy slows, a reading for the month of june that should be below 50, our sense is deflationary pressures will most likely intensify at least to the short term. >> what's the short term? what do you mean when we say deflationary pressures? how significant? >> i think consumer demand and manufacturing industrial demand is going to continue to pullback. short term is really going to be defined by the next big step for the markets which will be in the next week, maybe next eight trading sessions, ahead of the eurozone meeting next week on
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the 28th of the month where european officials really, david, have to come forth with something concrete as regards the challenges in europe. whether that's a depository insurance program for the banking sector, whether it's a unifying taxes and financing sector for the eurozone, or to at least calm down the strains between germany and -- >> i don't know that you're going to get any of those things. >> good luck with that, john. >> that's not going to happen, john. >> let me ask you a more immediate question. it looks to me as if central banks are pulling back from mass injections of liquidities on both sides of the atlantic. i think the reason the oil price is so far down today is it is driving out that speculative element. whether you argue for growth or you argue for qe, the two main bases for the price of oil to possibly rise have been removed. therefore people are getting out. is that a possibility? >> simon, i'll take the other side of that. i don't think it has anything to do with the speculative nature of the markets. what i think it has to do with
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is a fear that central bankers, though they are still inserting liquidity in the markets, seem to have the real bazooka loaded but on the sidelines. even central bankers are sending markets a signal that we're doing something, but the odds are we're going to have to do much more later on down the road. >> john, why is the price of oil and arguably gold falling so heavily today and not the stock market? >> i think you're seeing a bit of a risk off trade. you know, commodities tend to be a little bit more sensitive to the proinflationary pressures of banks. if anything, probably just a risk off trade. i think the visibility and lack of traction in the markets over the next two months, specifically coming from europe, will have risk managers just pulling risk back and playing it safe. >> all right. well, john, thanks for your time. appreciate it. john brady, r.j. o'brien. let's go a little further on moves amid the commodity space. specifically oil and gold. joins us now, sterling smith, vice president of commodity and
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research at citi bank institutional client group. great to have you with us. in terms of the main driver for oil at this point what is it? >> the main driver behind oil i think is simple classic economics. we have supply solid. we have production growing. you know, look at what's coming out of north dakota alone. we balance that against demand that's terrible. the problem with the price of oil is the economy itself is not very strong. gasoline demand continues to drop. that continues to pressure oil lower. i think it's going to continue pressuring it lower possibly down maybe to the 72 range easily. >> so the oil market is telling us that global demand stinks, for lack of a better term. but the stock market's actually holding up. you think the oil market is the one that's got it right. is there an implication that perhaps the equities markets shouldn't be close to five-week highs at this point given what the oil market is telling us? >> if you look historically, cheap oil is actually good for the stock market. when gasoline prices come down, that puts more money in consumers' pockets.
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that money finds its way out of the oil field an into the rest of the economy. i do think that lower oil prices can, in fact, support the stock market. if we're going to see real growth in the equity market we need to start seeing real growth in the economy here in the united states and real growth in the economy in china. that's going to produce better results out of the equity market. given the search for yield and the fact that yields are so low, money has to go somewhere. and i think the stock market is considered a safer place than going into the oil market. i do think the speculative interest in oil is drying up a little bit. simply because there is nothing to drive it higher. >> that is the point, john, isn't it? to come back to what i said earlier, this is not -- you know, the economies of the world are not contracting, john. they are just growing potentially -- sterling. forgive me for getting your name wrong, sterling. the economies of the world are not contracting. we're talking about a possible slowdown. look at what is happening in china. the united states is still growing. the demand for oil is still growing. it's not true to say that demand for oil stinks.
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all that is happening here is a change in the perception of where the price of oil might go and, therefore, speculators are coming out of the market. >> well, i think you have both things happening. i think you do have a situation. while demand for oil is growing, it's the rate of growth, simon, that really matter. that rate of growth is tailing off. when you build supply that's going to be an actual weight on the market. >> china is still growing at 7% or 8%. the united states will till grow at 2%. big economies of the world are still growing. the demand for oil will still grow. >> that's right. but china growing at 7.4% is a disappointment when the business plan two years ago was we would see china growing at 11% and maybe the united states growing at 3.5%. that's where the grind comes. >> hold on, sterling. simon, i'm curious. what are we trying to get at here in terms o f this question? everything is based on, yes, expectations. while china will continue to grow, it won't grow as fast. therefore the demand won't be as such as anticipated. so therefore the price of oil
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goes down. demand is, in fact, lower. >> what i'm trying to get at is that wher we see a move in the market, everybody attributes it to fundamental reasons. if you see where gold is going, for example, they will always attribute it to a fundamental dynamic. very often it isn't simply about a fundamental dynamic. the bigger issue here in my view, you're the expert, sterling, not me. i accept that. the bigger issue here is that the central banks are not going to pump massive amounts of cheap money further into the economy, which will then go into the oil market. we know that qe, massively boosted commodities, and we're talking about no more qe from the fed, that's why the price of oil is falling. not because the demand situation has got sizably worse in the last four days. that's all i'm saying, sterling. >> oh, i see. and i understand your point. but there's a lot of dynamics and a lot of things that go into pricing things forward. if you take a look at the crude brent spread and how much that's tightened up, that's going to provide some relief at the gas pump. if you look at gold from a purely chartist's picture, gold
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has been in a bear market since august. it's hard for that market to get traction. it doesn't perform well during a crisis. it performs well after the crisis. >> but do you not understand the contradiction in what you're saying? you're saying the price of gasoline is going to fall. that will be good for the economy and good for demand. in other words, demand is actually looking quite good at this sort of level for gasoline. >> eventually down the road it will get to a price point where demand will improve. i don't think we've found that price point yet. if we maintain supply and production that we are, it may not -- it may settle at closer to 3.25 or 3.30 a gallon. >> sterling wooesh going to leave it there. we appreciate your time. sterling smith of citi bank. simon, i'm just curious. every commodity, everything at some point demand increases. no? i mean -- >> if he -- >> why is this a contradiction. >> because they have it -- in this argument that goes round you have it both ways. you can't say, okay, the price of oil is falling because demand
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stinks, which is where we started the conversation. then go on and say how this will be great for america because the price of gasoline will be lower and that will invigorate growth. you can't -- you can't say both of those things. those are contradictory things. >> i understand what you're saying about invigorating growth in terms of invigorating the economy. but in terms of invigorating demand for gasoline, i can see that. that part of the equation. >> they are bound together and they're circular. the price of gasoline at the moment here in the united states is a major stimulus for the u.s. economy. i think we would all agree with that. so if anything at the margin, the fact you've seen the price here means that america will grow more rapidly which means it will demand more gasoline at this price. >> i understand what you're saying. i understand what you're saying. let's get a market flash. back to hq and brian shactman. >> i'm in on that conversation. i'm going to let it go. cag, conagra best performer on
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the s&p 500. pretty good numbers on eps and revenues. consensus guidance was much better than expected. they basically have volumes down but pricing has been able to offset it. basically, david, they are managing their business very well in this environment. back to you. >> very interesting. of course, conagra had made that move on raw corp. some time out, just to mention that. raw corp. not as strong a performer. thanks, brian shactman. coming up, the best fund managers gathering in chicago for the morningstar conference. we're going to take you there and speak to one of the conference's five-star guests. that's next. as we head to break, we'll take a look at the markets. as you see, we are down about .3% on the dow and almost .5% on the s&p. well the kids wanted a puppy, but they can be really expensive. so to save money i just found them a possum. dad, i think he's dead. probably just playin' possum.
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thanks. ♪ okay. what's your secret? [ male announcer ] the united mileageplus explorer card. get it and you're in. and somebody asks me a question about the volt. what really blows them away is when i tell them i almost never go to the gas station, despite the fact that they see me driving to work every day. i fill the volt up once every -- maybe once every couple of months. and that feels absolutely wonderful. i'm hardly using gas, but it's there when i need it. anybody that thinks that this car doesn't have solid performance, hasn't driven it. there's no other car like this on the road. ♪ cnbc is live today from one of the biggest mutual fund conferences in the country. the morningstar investment conference in chicago. to that end, let's go to tyler mathisen who has a five-star bond fund manager for us.
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hi, ty. >> we're doing a lot of five stars today, simon. thank you very much. these are the folks, the men and women who manage your money. either in your 401(k) or in your private accounts. mark geezle is one of them. he's the global head of pimco's corporate bond management team. but also the manager of the five-star pimco investment grade corporate bond fund. you're understandably right now in your sort of overall view of bonds are underweight europe. i get that. i understand why. what would change your view of that so that you would become overweight europe? >> well, i think a more bold move by policymakers, particularly governments and central banks, to buy, for example, italy and spain. when you look at italy and spain trading 6%, 7%, that's not sustainable in a world that's -- europe's heading in recession. the problem is that a lot of banks own that sovereign debt. that's leading to a credit contraction in europe. so europe, the headwinds are
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pretty significant. we would need a much more all-in policy response. >> do you expect that? do you see anything that leads you to believe that's coming? >> we don't. because it ironically encourages moral hazard. i think we're going to see europe be pretty weak for a while. >> bounce along the bottom. >> bounce along the bottom. that's why we're favoring other areas. >> your fund has a wonderful five-star record. a yield of about -- >> 5.2%. >> 5.2%. beautiful, juicy yield. do you think corporate bonds are going to outperform corporate equity over the next five to ten years? >> well, i think in a low growth environment, i think corporate bonds are going to hold up very well. corporate bonds with deliver 4%, 5%, 6%. if you think about it, nominal growth even in the u.s. is probably 4%. 2% dividends. that's a 6% roughly expected return for equities. corporate bonds can deliver roughly that with a third the volatility. over the last ten years corporate bonds have produced higher returns than equities
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with a third the volatility. for a lot of investors corporate bonds are actually the sweet spot right now. >> i heard you say earlier in your session that the one area that really got you going, i could tell, was macao. macao fixed income and equity. talk to that point. >> i was just in china last month. i just met with a lot of the senior executives in the major casinos yesterday. that market is unbelievable. we are talking about a $38 billion market which is five times the size of las vegas. five years ago it was the same size. this is a market where a company like las vegas sands, it was maybe 10% of their revenue, going back five years ago, now it's 44% of ebida. this company now has 88% of its earnings coming from asia and singapore. so this is a major growth engine. >> growth market, very healthy internal rate of return over there, right? >> the government charges 39% taxes. and these companies are still generating returns on capital above 20%.
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you're going to see new casinos go into kotai. you're going to see wynn do a casino. las vegas sands has an incredible position in that market. it's a real growth engine. >> mark, you live in a beautiful place. newport beach. you've got three things here. europe's going to bounce along the bottom, corporate debt may give you a very nice return at a lower risk than equities, and look out for macao. >> look out for macao. thank you very much. >> back to you. >> thanks very much, tyler mathisen. chesapeake announcing its reconstituted board this morning. is it enough to turn the tide for the embattled natural gas company? we'll talk to a top ranked analyst, get his thoughts next. first over to rick santelli, find out what he's working on for the next hour of "squawk on the street." rick? >> thanks, david. i'm looking at the euro/dollar options pit right now. not as busy as it was yesterday on the second day of that two-day fed meeting. today we're going to talk about one word. it's an important word. it's called "recourse." why is it important?
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there's a million theories about how to fix what's wrong with europe. but really it's about stabilization. but the reason going from stabilization to solution is difficult is all imbedded in the word "recourse." you're going to have to tune in at the top of the hour to find out exactly why that is. see you at the top. with the spark cash card from capital one,
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markets are down across the board. the s&p and the nasdaq down fraction ally and there are big movers in the section. the full year forecast in fact may exceed prior expectations if the trends continue. remember, they just raise the the full year last month. this is a very positive outlook. they say that margin pressure should ease also in the second half as we see cotton costs come down so that's trading nicely
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higher. >> we also have the big move in on ex up and celgene now and that's larger because it is a $30 billion company and look there after unexpectedly getting an fda panel to support and support rather strongly a drug that it has for myeloma. on the flip side, revri dithat celgene has, they are withdrawing that, and so that stock is getting crushed right now. interesting story developing in the stock market. onyx always is figured into prominently as a takeover target and fits in the area where big pharma likes to play, not too big to take a huge risk on. >> with 37 minutes from the european close i want to show you what's happening with the spanish yields. the spanish bull markets rallied for a third day, one reason we have not fallen out here and you
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see how the yields are coming down. there is expectation we're getting some movement from the germansal loug the safety net funds to by italian and sovereign debt and it is also the day in luxembourg spain will detail what it believes the holds are in the banks and ask for those to be filled by the safety net cash and we'll talk about that at the european close at 11:30 and we may just be getting important movement in europe which is positive for investors here. >> so tweet time, right? >> tweet time. oracle's ceo agreed to buy 98% of hawaii's sixth largest item, l u.n. ai and acquiring it from billionaire david muir dock who owns all but 2% of the 141 square miles. the price tag is not disclosed but said to be between a cool 500 and $600 million.
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so in this morning's fork on the tweet we're asking you if you were larry ellison, what would you rename your new hawaiian island? tweet us and we'll air your responses throughout the morning. to watch it for us. thank you so much, i appreciate it, i'll be right back. they didn't take a dime. how much in fees does your bank take to watch your money ? if your bank takes more money than a stranger, you need an ally. ally bank. no nonsense. just people sense. ♪music plays throughout
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time for squawk on the tweet. oracle ceo larry ellison agreed to buy 98% of hawaii's sixth largest island and we asked you if you were larry ellison what would you rename your new hawaiian island? alexia tweets lanii 2.0 and ryan sweets delphi island and ivan tweets name is control home. when you get lost, you will have a shortcut home. >> i love the way they write it. larry ellison agreed to buy 98% of hawaii's sixth largest island like please come and buy our island. >> yes, take it off our hands. >> and like he went in and wanted it in the first place. >> he has plenty of money though. it is a great thing when 600 million represents a small percentage of your wet worth and you can buy a hawaiian island. >> what kind of commission do
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you pay on that. >> apparently there are 3,200 people that live on the island. i don't know if that is true. >> he offered to regenerate it, though. i guess there will be a hotel for guests. >> one should hope. >> i don't think we'll be there. >> thank you for switching on cnbc. here is what you may have missed so far this thursday. >> welcome to hour three of "squawk on the street." here is what's happening so far. >> the trend in job growth has been really negative. the trend, it is not just a blip anymore. >> and the numbers are 387,000, would have been up 1,000 from last week and last week's was revised from 86 to 89 so actually down 2,000. >> to save this economy and it is somewhat controversial but they have even cut the second rate consult and two rate increases through in europe. they have only cut once. this guy has done everything he
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can. you bring on fred pose, the guy that says put the curtain back and i am showing everything. listen to me, fred poses doesn't allow this non-sense. be careful. the game just changed and you changed it. what a bizarre world the way prices are set now is at 444 a.m. because of what's happening in spain. should have been just soccer. >> the existing home sales in may fell 1.5% to a seasonally adjusted annual rate of 4.55 million units. april's numbers unrevised. >> they have been very clear the trigger for further action would be if they weren't making sufficient progress in the employment situation towards their mandate and, boy, their forecast seemed to suggest that threshold is almost met already. >> good morning. welcome to the third hour of "squawk on the street." let's get a check on the
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markets. we're off the lows but it is a soggy day as you can see and tech stocks in the midst of retreat or some of them, micron falling off posting a loss and red hat in the red and hewlett-packard and intel down significantly today. conagra, the biggest gainer, rising sharply after a strong fourth quarter earnings report. >> time for the road map here. chesapeake making big changes to its board adding five new i understand independent directors. find out what it means for the future of the stock trading lower at this hour and google shareholders getting set for the search giant's annual meeting. there is sure to be a lot to discuss. we'll talk to a shareholder about what she is expecting and republican representative tim holscamp joins us live with his plan to get the debt under control and out here in the east
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a heat wave is sweeping the nation. topping 100 degrees today and power grids under serious pressure. we'll tell you how the heat can put pressure on your portfolio as well. all of that and much more. >> we start with chesapeake with the share of drama recently. today the ceo aubrey mcclendon is walking away from his chairman role to put it politely. what does that mean for shareholders in chk. joining us an analyst with stern a gee. good morning to you. notable that the new chairman is the former conocophillips boss archie dunham and he knows how to do m&a. is this a turning point for the stock and stockholders? >> i don't think it is a turning point. we knew a new board was coming and we had good insight to think it would be a group of highly pedigreed individuals selected mostly by southeast management. i think the big news is it is unlikely that he would move to the role of a full time ceo.
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there had been speculation you would see someone possibly younger come in that would wear both hats if the pressure to have mcclendon ousted intensified. >> in terms of this new board, does this essentially reaffirm the notion that aubrey mcclendon has that on the office. >> i think we'll see how the deals play out and the commodity price looks heading into 2013 and how the aggressive strategy has played out. >> speaking of deals, incident to get to the thing that appeared yesterday. the ceo had been in oklahoma in the past week as part of a due diligence process. what probability do you assign this in terms of it getting done and specifically to sine pek. >> it is important to remember what deal they may be interested, that they would be interested in pieing the permian basin assets and i view that as
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highly unlikely. they may be interested in a joint venture in an oil play they developed in oklahoma and kansas where chesapeake would remain the operator. have you seen the international oil companies partner with these type of players and i would note they were seen with some of the other large e & p companies in oklahoma city, so the rumor mill may have spun out of control on that story. >> when does the stock go from here? i assume we have found a flaw here that we know of. >> i would say i think at $14 i published a note a few weeks ago seemed like the stock had found a floor. you have to look at the commodity price environment. chesapeake, unless they substantially added hedges since the first quarter report, they're one of the worst hedging profiles of any independent e & p, and you have seen additional oil and natural gas price plummeting and stabilized and liquids really a third of the commodities plummeted year-to-date and they're very
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vulnerable to each did he lane. >> you did say you thought it would be easier for the business to raise cash or more easy for it to raise cash than many in the market assumes. >> sure. i think people feel that at 13 billion debt as of march 31st they may be limited but they could pledge more assets and raise secured debt if necessary. i think they could rearrange covenants with the lenders into the 4 billion credit facility and lenders would be more prone to renegotiate with chesapeake than try to take over the assets should a liquidity event occur. >> bottom line it. where are we on the stock? >> i am neutral rated on the stock. i think it is range bound. to get bullish you really need to have a strong outlook on natural gas prices and at this point you have to revisit 2013 spending plans and i think they have a lot of heavy lifting to kind of redefine how 2013 spending will look. i think current guidance is looking less and less plausible every day. >> interesting. tim, thank you for your time.
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>> let's check in with rick san lelly and the san tell i ex change. >> i am sure simon will have comments but down here on the exchange floor we read the stories and there are boat loads of them with regard to plans to stabilize europe, plans potentially to actually come up with growth after the stablization. we have efsf, esm, all the alphabet soup programs. in the end, let's take a step back and do what we do in chicago. let's think about it and do it on a very simple level. if germany does everything that those who want to save europe think they should do, all the way out to basically issuing euro bonds, where they're on the hook for everything, what would not mentality to take that leap? well, recourse. if germany has an ability to defend what it is guaranteeing, my guess is and we arrive at on
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our discussions they will do it. let's think about what that really means in reality. it means should a country like spain, take spain, today everybody was happy with their auction, but it was over double the rate of the last auction on these short dated maturities. so is that a good thing? who bought the auction? are investors, real investors buying the auction? no. it is kind of like a chain letter except for the only people allowed to write letters are within the system itself. it is not even allowed to escape, to reach escape velocity because in the end anything that's going to work with regard to the funding issues of these countries has to be pal latable to outside investors, not part of the incest us on scheme. what would germany do if they bailed out and wrote a check, for example, spain, probably too big to bail out, they would have to come in if they didn't abide by the agreement and take over various functions and institutions of the government. now, what would the financial times headlines be if that
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occurred? i don't see that happening. i think recourse is different in europe in so many ways. if something in california doesn't jive with california ans, they can move to another state and go to oregon or colorado, pretty much the same language and culture. how well does that translate to the countries in europe. there are a lot of issues and simple as to why the problem is almost unfixable on many levels. back to you. >> thank you very much. want to get to john harwood with more on the resignation of commerce secretary john bryce on. >> melissa, the secretary told president obama in a letter last night that he was resigning. he told the commerce department employees this morning and said the administration can't afford distractions at this point and he has been of course undergoing observation and treatment since he had those accidents which he blamed on a seizure and it drew a lot of attention at the time and nobody quite knows or at least it hasn't been told
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publicly what led to that seizure, but this is a very we w regarded former utility executive chairman of southern cal cal edison who now left the president's cabinet a few months before the election and there is an acting secretary rebecca blank. we'll see whether there is a permanent choice confirmed. i would tend to doubt it given the short time in the election and the relations between democrats and republicans right now. >> is it important that he was not allowed to simply maintain medical leave, that actually the white house has said you have to go? >> don't have any indication that the white house said that. this is news that just broke a few minutes ago and that he informed the president last night. the president adopted what seemed to be a fairly cool response to the thing, but a cautious response, as might be expected when you have a sort of unusual case like these two hit and run accidents, but we don't know yet whether the president tried to make this happen. >> okay. john, thank you very much. send it over to brian shactman
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for a quick update. >> david talked about the window and trend of pharma takeover targets. dendrion is another that comes up a lot and chatter about it today and it is up 3% and market cap just over a billion dollars and the last three months down more than 20%. melissa, back to you. >> thank you very much. representative tim hooulz camp joins us live with a warning about the nation's rising debt. that after a short break. laces? really? slip-on's the way to go. more people do that, security would be like -- there's no charge for the bag. thanks. i know a quiet little place where we can get some work done. there's a three-prong plug. i have club passes. [ male announcer ] get the mileage card with special perks on united, like a free checked bag, united club passes, and priority boarding. thanks. ♪ okay. what's your secret? [ male announcer ] the united mileageplus explorer card. get it and you're in.
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google shareholder meeting slated for later today. christine janz is an investment analyst at north star with $3 million worth of google shares. great to have you with us. >> thank you. >> certainly there is a lot on the plate and a lot on the docket in terms of google. what's the number one issue in your view? >> the number one issue is north star asset management at boston, asking google for a say on political contributions. as shareholders we view this is important because google's political contributions have not been consistent with the core values and in particular with some of their core business issues. >> this is an even bigger issue than the notion of issuing a whole class of shares that really cut the shareholders short in terms of voting power. i mean, as a shareholder that's not the number one in your view?
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>> well, that's certainly part of it, but one of the issues with google from our view is that promoting the internet as a free and open platform has been a core strategic business issue for them, and one of the things that has happened over the past year is that congress has promoted a bill called the stop online piracy act which would intrude very significantly on advertisers and internet providers to censure essentially domains on the internet and google had very public opposition to sopa and in spite of that has been making political contributions in particular to seven out of the 12 authors of the sopa act and what we're bringing to management's attention is that this kind of inconsistency with google's political contributions
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and google's business interests as well as the core values can have a diminished effect on google share value. >> at the end of the day, christine, and i am trying to understand from a shareholder perspective, you think that will be a better catalyst for stock performance than you actually preserving your voting power when it comes to how the company governs itself and everything from compensation to areas of business it wants to get into in the future? >> given that the founders of google at this juncture as well as employees control very large percentage of the shares of google, essentially they're already controlling the direction of the firm, and what we're asking for is some accountability with regard to their political contributions. now, with regard to the share issue, of course that's a concern to shareholders, but the
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point of having ownership versus management is that owners weigh in on these issues that are very critical but there needs to be a dialog that occurs between ownership and management. >> christine, we'll leave it there. thanks so much for your time. counting down to the close in europe. about 13 minutes and bringing all the action live when it happens. be right back. our cloud is made of bedrock. concrete. and steel. our cloud is the smartest brains combating the latest security threats. it spans oceans, stretches continents. and is scalable as far as the mind can see. our cloud is the cloud other clouds look up to. welcome to the uppernet. verizon. in your fight against bugs. ortho home defense max. with a new continuous spray wand.
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thanks so much for your time. thanks so much for your time. thanks so much for your time. welcome back. i want to share a note that may be moving markets today. goldman sachs saying they're recommending a short position in the s&p 500 with a target of 1285, 5% below current leveling and the fed pushed them over the edge into that view point. although yesterday's delivered easing as expected, positive risk as head of the already
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buoyed markets and we think with incremental u.s. policy on hold the market will need to confront a deteriorating growth picture near term. melissa, back to you. >> thank you, brian shactman. head over to rick in chicago talking debt with representative tim huelskamp. rick. >> thank you. welcome representative from kansas, republican tim huelskamp, and i find it very fascinating, congressman, and welcome for being here and that many including yourself that have been really adamant about trying to control the debt don't get very much applause for the dynamic and as a matter of fact seems like the group you're kind of involved with gets blamed for much of what has been going wrong. what do you think is going on with debt right now and when do you think we're going to reach that next 16 plus trillion debt ceiling level? >> it is pretty amazing. just last august there was the grand debt deal which i didn't support and before those cuts actually take place, our office
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predicts we will hit another debt limit that sometimes maybe on december 31st we'll run to that 2.1 trillion dollars that the president borrowed and run through that spending and we're spending $3 billion more than we're taking in every day, running $3.3 billion deficit to every single day for the last six months we have been adding to that deficit and by the end of the year we're likely to hit the limit once again. >> well, obviously the solution must be to raise taxes. we need to raise taxes to pay for that. how far into the taking care of the debt problem does higher tax scenario get us, congressman? >> i think if we allow the bush/obama tax cuts to expire, we would crater the economy and the deficit would widen and the problem up here is not taxes. it is too much spending. in the debt deal we didn't cut spending enough. i didn't think we ended up cutting it at all and folks will agree or disagree. the point being, we'll have the fourth straight year of trillion dollar deficits and i am a
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member of the tea party and we come up here to change that and say, hey, at least we didn't make it worse. that's not good enough for the american people. >> let's keep this theme. you're part of the house ag committee, there is a farm bill right now that is working its way through the senate. i believe in july the house will have its version. can you give me a quick synopsis of what's going on in that bill and what's the biggest subsidy in that bill because we're all of course talking about the buzz word of subsidies. >> there are over $20 billion in cuts to america's farmers and ranchers and they're willing to step up to the plate and do their share and what the white house and the senate democrats do not want to focus on is the 80% of the farm bill that deals with food stamps. that's where all the growth has been. >> wait a minute, wait a minute, wait a minute. 80% of the bill, this farm subsidy bill is food stamps? i am kind of caught off guard. i didn't realize that was embedded in this. i just read something. i think we spent in '08 under 40 billion in food stamps. i think in 2012 we're estimated
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to spend over 80. why is it 80% of the bill and are they going to deal with this because that's where you g get ville if ied and if you want to make the cuts you're an ugly american for doing so. >> just a few months ago the house passed a bill that would reduce spending on food stamps 4% and the president and the democrats just went wild. in the last decade there has been a 267% increase in food stamps spending and we talk about a minimal of 4% cut and it is like the end of the world. that's where all the spending is in the farm bill, 80% has to do with food stamps and related programs and a smaller part has to do with agriculture and rural development and oftentimes in washington they forget the bigger part of the picture and focus and miss the battle here. that's the growth in food stamps. >> if we don't look at the big programs, and, listen, viewers, lin offers, i am not making a statement about food stamps.
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i am a market guy. i am talking about you can't continue to fund everything. you have to prioritize. congressman, is there an easy answer? there is obviously a stalemate here, not only whether it is taxes or spending that makes inroads but going into the programs at all is almost impossible. >> demonstrated to have a real inability to do this and president does not to want cut anything and senate democrats don't want to cut anything. a lot of times the house republicans don't want to cut and the best answer is we make the decisions soon ourselves rather than worrying about what our creditors think when we hit the debt ceiling. we've had the credit rating downgraded by an agency back on august 5th. we want to avoid and down grade by two other agencies. when we do that, we potentially lose control of the ability to determine the destination. if we're going to get there, we have to cut spending. it is the only way we can get there in order to get the fiscal budget and fiscal house in order. >> congressman, you just raised actually a very touchy subject,
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rating agencies, because today many of us on the trading floors are on rating agency watch. there is going to be potentially banks, maybe even countries, that may be downgraded today. are you the extreme problem, that caucus and tea party, are they the problem? is that why the rating agencies are looking at various banks ar already dealt with our triple a rating? are you the problem or the solution? >> we are part of the solution. the problem is not the rating agencies. the reality is when you borrow $3.3 billion every day, somebody will say, hey, you can't sustain that. that's when your credit rating gets downgraded and we have to have solutions in washington that say, no, here is a solution long-term how we solve it. we can't solve it over night but we better figure out how to solve it in the next five years or perhaps the next two years or the next six months we better have a plan or we run the risk of having our credit rating downgraded again like it was last august.
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>> congressman, thank you for joining the show. >> thank you. appreciate it. >> thank you very much. just a few minutes until the closing bell across europe. we have the close and the details and impact on the u.s. right after this break. how do you know which ones to follow?
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simon. >> we're deteriorating on stock markets around the world, here in the united states down now 80 points on the dow and also in europe as we come towards the
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end of the session, the realization you have slowing growth and you saw it in the da it ain china and the eurozone and now within the last hour or so here in the united states. the global markets are taking a turn down and that is representative on the three major markets there as you have them london and paris and indeed on frankfurt. within that the major moves have been the price of oil also reflected in europe. you see the oil majors coming lower and bp, negative territory for the session and the flip side, the airlines are actually doing well into the close in europe today and air france up almost 6%. importantly, of course, we have now the finance ministers of europe meeting in luxembourg and we have the comments going into that and spain may or may not ask formally for a bailout of the banks and certainly probably unveil what the study says about the holes they have there and the crucial question potentially for this meeting is whether they
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are going to support in the future other people's debt on bailouts. we'll come back to that. it is important for professionals in the market. here is the close. >> the european markets are closing now. >> saw deterioration through the session and you will see italy slightly higher. what's interesting within all of this, and i mentioned this earlier in the program is the way in which have you had this rally coming through on in particular the spanish bond market over the last three sessions. everybody will look at the auction and go look how much more the spanish are paying in order to raise money. of course they are. in a sense auctions are backward looking indicators of where market sentiment has already moved. it is important to track the future direction in which sentiment can go. if we have a look at the ten year yields on the spanish sovereign debt market will you see the way in which we continued to come further into negative territory. see the way we have come down.
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the spanish is moving higher and that's an important story. where do we go from now? the key question of course is, a, at this meeting of finance ministers will they change the rules in the future so that if they bail out spanish banks or french sovereigns, you coming in as a private investor will not be subordinated if things go wrong. you are not lower in the peking order than other people. it is very important. it is one reason arguably we have done better on the sovereign debt markets and crucially heading into tomorrow's summit in italy, are we getting movement from the germans on this idea that the pailout funds will be used to automatically support spanish and italian bond markets? going into the meeting you just saw in luxembourg, the german finance minister says we can buy in the secondary markets but only if it is part of a full bailout. that is critical as we go into the meeting tomorrow, melissa and we'll talk about that. we have an interview on that subject in a moment.
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>> we do. you pointed out deterioration in the oil markets, now below $80 a barrel, below the average and now oil is down by $2 a barrel and wti down to 79 and you see the session lows on wti. as we know, session lows on the markets overall and oil stocks that have been holding up decently early on in the session took a leg lower on this decline in oil and we have, for instance, exxon mobil down by more than a percent. if you take a look at the xle that tracks the energy markets it is down by 2 full percentage points at this point and make no mistake it is also in technology, the nasdaq, the worst hit of the major three down by more than 1% right now and take a look at shares of ibm, big blue down by more than a% and a huge weight on the dow and check in with mary thompson.
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>> the claims were nothing to write home about existing home sales were disappointing and the lei was slightly better and investors basically ignoring that and over that we had a disappointing date from germany and all of this combining to send the markets to the session lows. take a quick look at the s&p. we're watching at 1344 and seen the near term support for the s&p which is broken below that now again as we head twashd the lows of the sessions and can as brian noted earlier, goldman out with a note that would say short the s&p to a level of 1285. investors getting defensive and the areas of strength you see include defensive sectors such as utilities. dow utilities actually higher in today's session or at least they were earlier. yep, continuing to hold onto a modest gain there. we also see weakness in consumer discretionary stocks and as
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melissa mentioned earlier tech stocks are under pressure as well with the nasdaq looking to end what it has been a five day win streak for that stock. we continue to auch the banking sector again because there is a lot of speculation about when moody's will come up with the down grade on the global investment banks and talking about since february. it is expected by the end of the month. there is some speculation it could come sooner, possibly as soon as today. these are the five banks involved here in the u.s. that have been put on watch for possible down grade. just quickly, a couple of stocks in the news, tevana under pressure because starbucks is opening a tea store and conagra higher after better than expected results. dow down 85. back to you. >> thank you for that. as far as europe is concern and had broad direction stock markets, two major events to focus on, the finance minister's meeting we saw in luxembourg and then of course the summit between merkel and the rest and bigger country allies in the eurozone tomorrow.
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let's bring in david, chief investment officer for active fixed income. >> thank you for joining us here. we need to kind of explain to people the importance of what is going on in europe at the moment for the trekz of all risk assets, for you, what is the most important thing that they could move on either today or tomorrow? >> ultimately in europe we'll need to see real movement on coordinated fiscal policy and oversight of the banking sector. i think that's a lot to hope for out of this. >> not going to get that now. >> i don't think we'll get that now. i think the best we can hope for is to get meaningful progress on agreement on banking oversight in europe. i think that will go a long way to easing market concerns particularly given the funding pressures in spain. >> really? >> i think these will be temporary things. i think the market ultimately will need to see a much bigger back stop facility for european sovereign debt.
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>> what happens if the german's shift, and we don't know if they will, but what happens if tomorrow the germans shift and say, okay, you can use the bailout funds to automatically buy spanish and italian bonds if they move past a certain level in the market? as a professional how would you react to that? >> i think you get a short-term positive reaction in the market for something like that because merkel's comments even up to today have not been supportive of that. >> did you not think that was a little movement. >> it is a little movement. i think if you had 245 come out in the short-term they would react positively and the big question is is there enough money in the esm facility even if they allow that to really back stop the market because if you look at the size of those markets, particularly if you take $100 billion out of the 500 billion to back stop the spanish banks, you're only left with 400 billion dollars and in our view it is anywhere from a quarter trillion to half a trillion
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dollars short of what you need to back stop spain and italy. >> in terms of your portfolio i am curious if there are any bonds that you would buy in europe at this point? we're talking about sovereign debt and it is not something you actively choose to invest in but in that you have to match the benchmark and you do have some position there is. >> sure. there are parts of the european market attractive. germany has been a safe haven bond trade and so we have had positions in germany and some of the things that are interesting to us are markets like slovakia where a small european country, good credit quality metrics, appropriately rated in our opinion, and trading at over 200 basis points for something like germany, positive gdp growth and we expect stable rating and so there are areas in the eurozone, even if the eurozone that i think you could find opportunities. >> a lot of people, and a lot of focus on the german bond market at the moment and arguably some would say it is massively over bought and almost like a coiled spring, that it could from a high level collapse quite suddenly and perhaps i think the
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study was many people think that the yields will double over the next year. how important is that and what is the effect of that and how do you play that? >> i think the german bond market reflects like the u.s. treasury market the flight to quality bid, and in our estimation at least 100 basis points of yield that are priced into that so those yields are 100 basis points at least too low given the flight to quality bid. i think if you see policies again if germany gives on some of these initiatives and allows some more things to go forward, you will see a normalization in yields in europe and part is by german yields going up. i think if things go well you will see german yields rise. that depends. >> did you say to us in the course of that you thought we would get 100 basis points move on treasuries? you said it was similar to treasurys >> i think in the treasury market we also think that treasury yields are probably more fairly valued around 3% in the u.s. in the meantime, we're going to continue to have these problems in europe. i don't think we're going to get the ultimate fix this week.
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will you continue to have boughts of volatility in the market and it will force global investors and others to seek safety in u.s. treasury assets. >> david, nice to see you. thank you very much. >> well, as you see here, we're close to session lows right now, the s&p down by 1 percentage point and perhaps a tell in the market here is taking a look at the euro/u.s. dollar cross down by more than a percent at session lows right now and that has had an impact. high correlation recently in trading between euro/u.s. dollar and the s&p 500. >> as a footnote the dollar is strong across the board, though, which i find whether that is to do with -- i would come back to do with the fed yesterday which is not doing all that it could to ease and a lot of questions around that. >> we do want to go to brian and check in with him for market watch. >> want to point out pc makers, take a look. over night asia was reporting le nova, the second largest pc maker was reducing guidance to
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suppliers in terms of what they ship for the year. the company says no. whether it is slowdown in clien china or ma lays about global growth except for apple and out performing the group, not merely a pc company but giving a 25% salary boost to the workers in the retail stores which is getting a lot of traction out there as well. >> thank you very much, brian shactman. straight ahead, how the heat wave could affect your portfolio. take a look at the winners and losers from europe's trading session. with the spark cash card from capital one, sven's home security gets the most rewards
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sellers targeting in we're naming names. we'll see you in a few. >> it is very much the weather for shorts. just one day into summer and the heat is on on the eastern seaboard. temperatures certainly here in manhattan expected to surpass 100 today and other areas getting brutally hit. the weather channel's mike sidel is braving the heat wave in central park. really, mike, they're paying to you stand in central park? >> it is also 100 degrees out. >> getting paid. >> to stand in central park. >> yeah, i am getting paid. it is only about 90 right now. running a little ahead of yesterday's schedule and temperatures. yesterday 94 here, forecasting 98. that will be a record. the airports will probably hit the century mark as well as in washington. this is a good spot to be in the prk. plenty of shade under the trees and i am no fool. i hang out under the ice cream vendor, the ice cream, pop
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sickles and if you want one bad enough you can get yourself a hot dog and maybe a breet owe. there are people out on the grass today laying in the hot blazing june sun. i can't imagine how uncomfortable that must feel. still a fair amount of joggers and bikers despite the heat and a bit of a breeze. >> mike, yeah, presumably there on expenses. what else will you do, visit the zoo? >> i don't have time to visit the zoo, simon. >> really? >> i will be visiting my air conditioned hotel room tonight around 9. i will be out here all day. the key is to stay under the tree, stay in the shade, drink water, and you may find this hard to believe. the humidity today is not that bad. the heat index, how it really feels when you throw the humidity into the temperature is only about a degree above the current temperature. it is not incredibly muggy. we have talked to joggers out here and they said the humidity is not that bad, it is just plain down right hot like phoenix.
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>> mike, i hope you're able to sleep in your hotel room after such a stressful day. thank you for joining us to view that from the weather channel mike seidel in central park. >> i hear there is a slight breeze on the carousel. >> he is on expenses. he can do it all. >> he didn't recommend sleep overs. >> that was a different show, different time. >> that was yesterday's show. all right. take a closer look how the steamy weather may impact the utility stocks. it is up about 6% over the past three months hitting the highest level in nearly four years just this week. is there more room to go as the temperatures soar? greg gordan is managing director at isa. great to have you with us. >> greg, i will start off with you. we want to get to the heat and the impact on the stock specifically. in terms of what is driving the stocks, the flight to safety, the flight for yield and given what the fed has said ready to do more, is there any danger of
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rotation out of this sector seeking risker type of assets. >> you hit the nail on the head. the regulated utilities which are more high dividend paying steady revenue generators out performed the s&p 500 by 14% since the middle of march as this risk off trade has been put back on. they are trading at what looked like high valuations relative to the s&p 500 and don't necessarily look expensive versus bonds. that being said, we are very concerned that as we get through this period if it looks like we're going to have some sort of non-calamity in the global financial markets that you would see some of the higher p.e. multiple safe haven names like a conedison in new york or southern in the southeast and wisconsin energy trade down and trade down a lot as people rotate back into the market. >> dan, the question i get a lot
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from investors is i am still looking for safety, i am still looking for yield, i want to go into utilities and i am concerned about it. to greg's point in terms of the shift in investor sentiment and the potential rotation that might happen, what are the first signs of that historically? what should you be looking for? >> i think that to watch the group roll over, there is a couple things you can pay attention. you can watch how the etf was trading behaviorally and that seems to be the leading edge indicator where they are putting money into or out of the group from a directional call. i think that the risk off trade as greg said will come out of the large cap names first if people decide they want to get more aggressive in market exposure. our perspective while there could be some multiple contraction on the regulated, if there is a big move in the market, we still see what is a good overall value proposition in the utilities, i think has gotten lost a little bit and these stocks between eps growth and dividends are still going to give you 8 to 11% annualized
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rates of return and multiple agnostic environment that for a low beta group is still a pretty compelling return relative to what we have seen out of the market over a large number of years. >> greg, there was a lot of chatter about natural gas and whether there would be a switch over and that would benefit a lot of the power companies and now that we may possibly have bottomed on natural gas, what's the analysis? is it relevant to whether you should buy now or not? >> you know, natural gas, we're burning natural gas wherever we can in the united states ahead of coal where coal used to be at a material competitive advantage on price. you were seeing 5 to 6 bcf of day of switching during the spring and today we're see 2 to 3 bcf of switching and the reason it declined is it is hot out and there is more overall demand so coal has to run more as it is. over the long run what is happening is it is forcing a lot
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of coal plant owners to decide to retire their plants because they're want going to be able to compete with natural gas at these price levels and in the long run as we eat through what is sort of the excess supply of power plants we have in the u.s. today, the new power plants in the u.s. are all going to be gas plants. there is only one nuclear plant being built in this country. we talked about it on the show before down at southern companies jurisdiction in georgia and my bet is that will probably not only one we see and gas will be the marginal fuel prospective will i. >> we have to leave it there. thank you for your time. >> you're welcome. >> thanks. >> up next, how america's financial giants are embracing their patriotic spirit and frankly the gratitude for sacrifice in putting veterans back to work. back after this short break.
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the biggest financial institutions are making a major push to find fresh talent amongst america's veterans. kay kayla tauch is live at the job fair with more on an important
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story. kayla. >> simon, the macroeconomic picture is that much worse for veterans. the unemployment rate 50% higher than the civilian workforce. that's the reason it is playing up. it was spearheaded by the big wall street banks with 100 or so corporations behind them. you can see behind me the tables for j.p. morgan chase and several other companies and lines forming for people to come and get jobs and only gathering steam and last year they had more than 1,000 attendees that resulted in roughly 400 job offers and people hearsay they expect the same results this year if not better. to give you a cents of the other numbers, citigroup planning to hire. they're investing $20 million in a five year period and even with the macroeconomic headwinds we have the higher are you instilg
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and organizing that effort. >> you understand that it is cyclical, this is a great time to enter the industry pause we have time to spend with you and we can train you and teach you about the environment and people are not working 24 hours seven days a week. >> the costs are coming down and people are looking to shrink their businesses instead of grow them. when you start with an image that actually already exists and when you go to senior management and say we all want to do this and by the way it already exists and we want to organize around it. >> it appears to be a successful event again this year with the crowds coming in in droves and we'll be reporting live throughout the day and have more right here on wall street. guys, back to you. >> look forward to it. kayla, thank you very much for that. did you hear the coo saying they're time on their hands at the moment. >> yes. >> they can help by trading veterans but not as busy as they used to be. >> enough to say about business. >> don't forget to send us tweets. we're talking about larry
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ellison agreeing to buy 98% of hawaii's largest island once known for the pineapple fields and the island is now home to a pair of four seasons resorts, golf courses and luxury housing with more to come according to larry ellison. if you were him, what would you rename the new hawaiian island? we'll read your responses after the break. our cloud is not soft and fluffy. our cloud is made of bedrock. concrete. and steel. our cloud is the smartest brains combating the latest security threats. it spans oceans, stretches continents. and is scalable as far as the mind can see. our cloud is the cloud other clouds look up to. welcome to the uppernet. verizon. and then treats day after day... well, shoot, that's like checking on your burgers after they're burnt! [ male announcer ] treat your frequent heartburn
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let's get to it. time for squawk on the tweet. larry ellison agreeing to buy 98% of hawaii's sixth largest island so we're asking you if you were larry ellison what would you rename your new hawaiian island. gregory tweets the leave me alone island which is nice. joe tweets call the island the 98%er because he bought 98% of the island. carolyn tweets larry ellison should rename the island marry me, carolyn, island. >> so lush there. >> i understand you have your own address. >> and it grows


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